UK economy contracts 0.5pc; economists expected 0.5pc expansion

By Jason on January 26, 2011

“This is obviously very worrying, just at a time before the VAT increase hits so this looks awfully like the UK is headed back to double-dip,” Blanchflower told CNBC. “I think people have underestimated the sheer size of this shock,” he said.

Britain’s “awful” gross domestic product figure for the fourth quarter is pushing the country closer to a double-dip and limits the central bank’s ability to fight rising inflation, analysts and business leaders said Tuesday.

The UK was the first country in the G7 to release economic growth figures for the last quarter of last year and the 0.5 percent GDP contraction, instead of an expected 0.5 percent expansion, sent the pound 1 percent lower against the dollar [GBP=X 1.5807 -0.0179 (-1.12%) ] and the euro [GBPEUR=X 1.1572 -0.0149 (-1.27%) ] and knocked down European stocks.

David Blanchflower, a former Bank of England Monetary Policy Committee known for his dovish stance and currently a professor of economics at Dartmouth College, said the figure was “awful, dreadful.”

Britain’s government, formed of a coalition of Conservatives and Liberal Democrats, has implemented tough austerity measures to cut state spending and increase revenues in order to persuade markets it is still worthy of its triple-A investment grade.

Why is all this happening?

The UK fell for the notion that their economy could grow on speculation and debt alone. It led to the world economic crisis (the UK started crashing in 2007 with bank runs) and the UK has spent two plus years avoiding the pain by borrowing and printing money.

But that plan has run out of road and now the real pain is on the way.

Inflation is above target for 18 months and Bank of England says it’s temporary and even think about printing more money

What they don’t understand that inflation and money printing just depresses housing prices at this point as all income diverted to other things like gas and food then they check house prices and say – we have deflation and print more money that depresses housing even more.

These people are crazy in that they don’t understand anything. Don’t fret, for the US and Canada are next, for the inflation burst will be in those places and in less than 6 months housing will crash, while gas and food will skyrocket. This isn’t doom/gloom; this is reality.